Market Report: Friends Provident proves popular on bid talk

Friends Provident was strong last night amid talk of possible bid interest from Resolution, Clive Cowdery's investment vehicle that it is due to list on the London market next week. Citing reports of heavy institutional interest in the IPO, traders speculated that Resolution might secure enough funding to go after Friends.

"It's the obvious target because Cowdery knows it well," said one trader, who added: "It might be that, instead of a bid for the business, Friends might be broken up."

The sceptics said that Resolution would target unlisted businesses before it goes after large listed groups like Friends, arguing that the market conditions had deteriorated significantly since a bid was first mooted.

The chatter took Friends to 72.3p, up 6.32 per cent or 4.3p, and the stock closed at fifth place on the FTSE 100.

Overall, the FTSE 100 hardly moved, gaining 6.35 points to 4,163.61, while the FTSE 250 fell back 47.12 points to 5,801.82. Traders said that the Bank of England's decision to reduce interest rates to 2 per cent from 3 per cent was already priced in and, although it sparked some strength in consumer-related and housing stocks, had little impact on general market sentiment. One trader, highlighting the low volumes being traded, added that the move also reinforced the growing economic gloom that continues to deter buyers.

The mining sector was a mixed bag. Kazakhmys, up 4.64 per cent or 10.25p at 231p, and Vedanta Resources, up 2.58 per cent or 14p at 557p, benefited as some in the market sought to capitalise on recent weakness. But Rio Tinto, down 5.31 per cent or 61p at 1087p, and Xstrata, down 8.83 per cent or 61p at 629.5p, registered fresh losses as commodities prices touched new lows on a weakening demand outlook.

Rio, which was initiated as "neutral" at Goldman Sachs last night, continued to attract concern about its debt position. Goldman said that, assuming the mining group can refinance maturing debt, the stock offered substantial upside. "Based on our earnings and cashflow forecasts, we believe Rio Tinto will need to return to the credit markets to refinance at least part of the $8.9bn term loan due to mature in October 2009," the broker said. "In order to reduce this repayment requirement, we assume that the company delays some projects and assume the dividend is increased by only 2 per cent, just maintaining the company's progressive policy."

Elsewhere, Invensys, which said Sir Nigel Rudd will join the board as a non-executive director next month, was down 3.3 per cent or 4.8p at 140.5p after JP Morgan reduced its target price for the stock to 179p from 215p.

Stagecoach remained on the back foot, losing 7.05 per cent or 10.1p to 133.1p after JP and Panmure Gordon reduced their target prices for the stock to 166p from 272p and to 160p from 205p respectively.

"Depending on the severity of the recession, rail profits next year (particularly at SWT) may be hit by volume declines and premium payments to the Department for Transport," Panmure said. "Despite cost reductions and revenue generative initiatives we expect divisional profits to fall considerably in the current year."

Housing stocks were mixed – some bounced after the rate cut announcement prompted some short sellers to move out, while others remained depressed, unable to shrug off the gloom inspired by a grim report on the housing market from the Halifax.

Barratt Developments, up 9.35 per cent or 5p at 58.5p, was the strongest, followed by Bellway, which gained 5.52 per cent or 27.5p to 526p after posting a better than feared interim management statement. Berkeley, on the other hand, was unsettled, losing 2.35 per cent or 19p to 788.5p. Redrow also traded down, losing 2.08 per cent or 3.75p to 176.25p.

Enterprise Inns gained 9.24 per cent or 5.5p to 65p as investors welcomed the prospect of lower interest bills on the pub group's debt. Traders cautioned against reading too much into the movement, however, highlighting the lack of heavy trading in the stock.

The coking coal and coke producer New World Resources was down 3.69 per cent or 9.25p at 241.5p after Credit Suisse initiated coverage on the stock with an "underperform" rating with a 203p target price. "High cost commodity places [like NWR] can be attractive when commodity prices are rising due to positive operational leverage. However, with our expectation for declining coking coal prices in 2009-10, we would expect low-cost coal miners to suffer less," the broker said, adding: "We believe that steel prices ... are already preparing to bottom out and thus low-cost steel equities with good debt profiles should outperform coal equities, especially high-cost ones."